In re Gracey
| Decision Date | 15 May 1917 |
| Docket Number | 4386. |
| Parties | In re GRACEY. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Middleton & Blakely and E. Stanley Richardson, all of Philadelphia Pa., for petitioners.
Arthur E. Weil, of Philadelphia, Pa., for trustee.
On July 16, 1915, Mary E. Smyth, as treasurer of the Commercial Real Estate Company, filed with the referee a petition for repayment of taxes, amounting to $320.41, paid by the company for the year 1913 upon real estate at Fifty-Second and Haverford avenue, Philadelphia, formerly owned by the bankrupt. The petition recites that the claim has been assigned to Henry A. Lewis and Joseph J. Smyth, who loaned the company the funds to pay the taxes, and that they are the real beneficial claimants. A petition was also filed on the same day by Henry A. Lewis and Joseph J. Smyth, claiming from the trustee the amount of the taxes then due for 1914 amounting to $309.72. The claims have since been assigned to Flack and Seibert, who by sundry conveyances are the present owners of the real estate.
The real estate was subject to three mortgages, the first, for $12,500, held by the Fidelity Trust Company, the second, for $4,250, held by a Mrs. Watkins, of Baltimore, and the third for $10,000, made to Geraldine Gracey and assigned by her to Joseph J. Smyth. The claimants, Flack and Seibert, were tenants of the greater part of the premises at a rental of $75 per month. Under the lease, the tenants had the option of applying the rent to the payment of the taxes, water rent and interest on mortgages. The rent was insufficient to pay the taxes, water rent, and interest on the first and second mortgages. The third mortgage, nominally for $10,000, was given to secure the payment to Joseph J. Smyth of a debt of $1,500. The interest upon it was never demanded nor paid.
After his election, the trustee, at the direction of the referee, registered the title to the property in his name as trustee, and paid the taxes for 1912 and the interest on the first mortgage to February 23 and on the second to February 24, 1913. Flack and Seibert paid the rent to the trustee up to October 1, 1913, but paid no rent to him after that date. In the summer of 1914 Smyth caused judgment to be entered on the bond accompanying the third mortgage, and the premises were sold at sheriff's sale on November 21, 1914. No notice of the proceedings or the sale was given or attempted to be given to the trustee, although Smyth and his attorney knew of the trustee's ownership and his address. No demand was made upon the trustee prior to the sheriff's sale for the payment of taxes for either 1913 or 1914, nor was any petition presented to the referee for an order for their payment. At the sale no attempt was made by the mortgagee to bid up the property to protect his mortgage, nor to cover the taxes which the Commercial Real Estate Company and his attorney knew at the time were unpaid, and the property was struck down to the company for $75, sufficient to cover the sheriff's costs only, and the sheriff's deed was made to it. The Commercial Real Estate Company conveyed the property to Paul Reilly, Esq., attorney for it and also for Smyth, on March 17, 1915. Mr. Reilly conveyed it to Henry A. Lewis, Joseph J. Smyth, and Geraldine Gracey on May 29, 1915. Geraldine Gracey quitclaimed her interest to Lewis and Smyth, who conveyed it on January 17, 1916, to Flack and Seibert.
After taking title from the sheriff, the Commercial Real Estate Company, as recited in the petition, paid the taxes for 1913, with interest and penalties, and filed with the referee its petition for repayment of these taxes as part of the expense of the administration and a preferred claim. The taxes for 1914 were paid by the petitioners for review after they took title. The referee denied the prayers of the petitions. The petitioners for review claim that they are entitled to be repaid the taxes, which, they claim, the trustee should have paid as part of the expenses of the administration of the estate. They rely upon the law as stated by Mr. Justice Trunkey in the case of Hogg v. Longstreth, 97 Pa. 255, holding that, if a mortgagee, in order to protect his own interest, foreclose and pay taxes for which the owner is legally and personally liable, the law will imply an assumpsit on the part of the latter to the former; and the petitioners claim that, inasmuch as the title was in the trustee, they, as assignees of the Commercial Real Estate Company, should be paid out of the estate in priority to the general creditors as part of the costs of administration.
From the testimony it appears that Smyth was assignee...
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...tax sale to buy the bankrupt\'s worthless equity for the sole purpose of claiming the government\'s priority distribution. In the Matter of Gracey, D.C., 241 F. 981. On the other hand, there is a respectable split of authority on the question of whether a purchaser at a tax sale may be subr......
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